The following is a preview of proposals on political contributions, health care, product safety, and other social issues filed by shareholders at U.S. companies this year.

For the 2008 proxy season, the second-leading category of social issues proposals--after those concerning climate change--asks companies to disclose and better monitor their political contributions, including, in many cases, their political activities through trade associations. So far, proponents have filed more than 50 such resolutions.

This season also features an expanded campaign on health care issues and new proposals that target product safety. Proposals also abound on long-standing concerns for socially focused investors, including those seeking to expand equal employment protections to employees regardless of sexual orientation.

The shareholder effort to obtain more information on corporate political contributions is now in its fifth year. The proposals ask companies to issue semi-annual reports on all political contributions, as well as providing the guidelines for those contributions and identifying the persons involved in making contribution decisions. The resolutions include a request for information on contributions to so-called "527 committees"--groups formed for the purpose of influencing elections, but not overtly supporting or opposing specific candidates. In 2007, the average support for these proposals climbed to 25 percent. Moreover, proponents achieved 22 withdrawal agreements; they had worked out only nine in the first three years of the campaign.

The 2008 resolutions contain a clause asking for a reporting of dues paid to trade associations, defined in the proposal as "payments made to any tax exempt organization that is used for an expenditure or contribution if made directly by the corporation would not be deductible under Section 162 (e)(1)(B) of the Internal Revenue Code." The resolutions follow a template developed by the Center for Political Accountability, a research group in Washington that focuses on corporate political spending. The shareholder campaign was initially spearheaded by labor unions, but social investment funds, church groups, and New York City's funds are now filing extensively.

At this point the number of withdrawals of political contribution proposals is not reaching the heights of 2007 but is still substantial. Calvert Asset Management has reached a withdrawal agreement with Xerox, and Domini Social Investments withdrew a similar proposal at American Express. In addition, Walden Asset Management has reached agreements with Adobe Systems, Praxair and United Parcel Service. Other withdrawals on this topic include AFL-CIO resolutions at Johnson & Johnson and Bristol-Myers Squibb, a New York City funds resolution at United Technologies, an International Brotherhood of Teamsters proposal at Capital One, and a Sheet Metal Workers' International Association resolution at Prudential Financial.

Health Care Principles
This is the second year that activist shareholders have waged a campaign for universal health care. In 2007, a coalition of church groups and the Nathan Cummings Foundation, with advice from the AFL-CIO, proposed a resolution asking seven companies to report on "the implications of rising health care expenses and how it is positioning itself to address this public policy issue without compromising the health and productivity of its work force." Only two of those resolutions went to a vote.

The 2008 campaign, which includes 28 resolutions from the AFL-CIO and church groups, is considerably larger. The proposals' resolved clauses list five Institute of Medicine principles, which state that health care coverage should be universal, continuous, and affordable. Church groups submitted proposals at CVS Caremark and other health care firms that focus on corporate lobbying efforts to maintain the status quo. The AFL-CIO and church groups also filed proposals that stress the impact of health care costs on the U.S. economy at Wendy's International and other corporations outside the health care industry.

Proponents have withdrawn resolutions at Abbott Laboratories, Aetna, Bristol-Myers Squibb, Eli Lilly, General Electric, IBM, Johnson & Johnson, McDonald's, Medco, WellPoint, ExxonMobil, Merck, Target, and Waste Management after many of the companies agreed to post statements on health care reform on their Web sites. The AFL-CIO withdrew the resolution at IBM after the company issued a two-page letter on its health care position, supporting universal coverage. At this point, it appears that 12 resolutions on the health care principles will come to a vote.

For the second year in a row, the SEC staff has issued confusing "no action" letters on health care resolutions. The staff of the agency's Division of Corporation Finance has traditionally allowed companies to exclude health care proposals on "ordinary business" grounds, based on the reasoning that they relate to employee benefits. This year, a number of companies argued that they should be able to omit resolutions on these grounds. Among them, United Technologies characterized the proposal as "seeking modifications to the company's employee benefit programs," while Boeing argued that "the proposal, concerning health care costs, should be treated as relating to the company's ordinary business of providing employee benefits," and CVS Caremark argued that it would "impact how the company determines employee health care benefits issues."

While the SEC staff rejected the omission requests from United Technologies, Wendy's, and Boeing, the agency allowed CVS Caremark and Wyeth to exclude the church groups' resolution that mentioned lobbying on ordinary business grounds. The SEC staff letter defined ordinary business in this case as "employee benefits." Why the SEC staff allowed the omission of the proposals that mentioned lobbying, but not the other health care proposals, is unclear.

A growing number of companies are petitioning the Securities and Exchange Commission to allow for the omission of corporate governance-related shareholder proposals, a RiskMetrics Group analysis of "no action" requests finds. The challenges have led to a spike in proposal omissions this year, with the SEC favoring issuers on a number of key governance measures.

Through March 25, issuers had challenged 33 percent of all governance-related proposals filed this year, compared with just 20 percent in calendar 2007. Challenges by issuers also are more likely to be successful this year than last. For example, 48 percent of last year's requests for no action were granted, while this year's figure so far stands at 69 percent, according to RMG's analysis.

The fact that issuers have challenged one in three proposals filed this year, and that the SEC has allowed seven of 10 to be omitted, is troubling to many investors.

"Companies are doing whatever they can to get rid of shareholder proposals," argues John Chevedden, a Los Angeles-based shareholder activist. Chevedden points to this year's effort by companies to omit proposals on cumulative voting, a long-time proxy issue, as an example of corporate efforts to staunch the filing of investor resolutions.

According to RiskMetrics Group records, 24 companies allowed shareholders to vote on cumulative voting resolutions last year, with just one proposal facing a challenge at the SEC. This year, however, 10 of 33 such proposals filed have been challenged, with the commission thus far allowing nine to be omitted.

A number of firms have sought to exclude the proposal from their proxy by petitioning for no action under SEC Rule 14a-8(i)(2), which allows for exclusion when a proposal may cause the company to violate any state, federal, or foreign law it may be subject to. Delaware-incorporated Citigroup, which last year allowed the measure to go to a vote, successfully argued against the proposal this year on those grounds, noting that the adoption of cumulative voting may only be implemented by an amendment to the certificate, which requires both board action and shareholder approval.

According to Chevedden, companies such as Citigroup emphasized the omission of the implicit phrase "take the steps necessary to" with respect to board action, thereby allowing for them to claim grounds for proposal exclusion. The SEC staff has thus far ignored his rebuttal arguments, Chevedden said, leading the investor activist to question why the staff doesn't simply allow the proposals' inclusion so long as they are rephrased.

Citigroup officials contend that they sought to omit the proposal in light of the company's adoption last year of a majority vote standard. In theory, cumulative voting can only be effective at those firms or in cases where plurality voting applies. Still, companies are allowed to maintain both cumulative voting and majority threshold voting under Delaware law, a point espoused by proponents. "I do not believe that any cumulative voting proposal was ever excluded by the SEC on the grounds that a majority vote standard could be incompatible with cumulative voting under Delaware law," Chevedden said.

Still another reason for the spike is that more companies are seeking to omit resolutions on procedural grounds, observers say. "There's been a tendency of late for companies to crack down on eligibility requirements," noted Cornish Hitchcock, an attorney for the Amalgamated Bank's LongView Funds, pointing to SEC rules that allow for omission when proponents fail to provide proof of holdings or other documentation required to file proposals. According to Hitchcock, individual shareholders, those representing retiree associations, and church groups have in particular seen an uptick this year in companies challenging their proposals on procedural grounds.

Roughly 30 percent of this year's resolutions have been omitted for failure to meet eligibility requirements, compared with 26 percent in 2007, according to RMG records.

Many of this year's shareholder proposals have been omitted on the grounds that the resolution relates to the company's "ordinary business," which, according to SEC rules, management is best placed to address. Most of this year's crop of subprime-related proposals was excluded on such grounds, for example. Some SEC watchers have questioned decisions on subprime-related proposals given that at least one proposal–calling on homebuilder Pulte Homes to report on mortgage lending risks–passed muster, but similar proposals filed at other firms were omitted. Twenty-three percent of proposals omitted so far this year have been excluded on ordinary business grounds–a 10 percentage point increase over calendar 2007.

Overall, the SEC has sanctioned company requests to omit 22 percent of all governance-related proposals filed through March 25. During the same period last year, 11 percent of total filings were omitted, while full year figures for both 2007 and 2006 stood at just 12 percent.

Meanwhile, the number of social issue proposal-related omissions is down slightly from historical averages. In calendar 2007 and 2006, 17 percent and 16 percent of all social issue resolution filings were omitted, respectively, whereas this year the figure so far stands at 14 percent.

The decline can in part be attributed to the commission's approval of revised proposals calling for the adoption of principles for healthcare reform which last year the SEC allowed companies to exclude on ordinary business grounds. (The SEC has historically allowed companies to omit proposals related to employee healthcare on the grounds that they touch on benefits, an ordinary business question.)

According to Hitchcock, the proposal was able to pass this year because proponents including the AFL-CIO used a principles-based template such as those now widely used to address concerns over climate change, employment in Ireland, and global human rights. "This year's United Technologies decision [the first denying no action relief on a healthcare reform principles proposal] could pave the way for healthcare issues to keep from being omitted," under the no action process, Hitchcock noted.

The staff of the Corporation Finance Division has allowed Schering-Plough and JP Morgan Chase to omit a new bylaw proposal that seeks an independent lead director after rejecting requests by AT&T and Boeing to exclude the same resolution.

The proposal urges the companies to adopt a bylaw to require the board to have an "independent lead director whenever possible with clearly delineated duties" who would be elected by board's independent board members and serve at least one year, unless the company had an independent chairman. The resolution listed a minimum set of duties, such as "serving as liaison between the chairman and the independent directors" and being available for consultation with "major shareholders." The proposal specified that the standard of independence would be that of the Council of Institutional Investors (CII).

Shareholder William Steiner filed the resolutions at Schering and JP Morgan. Thomas Finnegan submitted the Boeing proposal, while Chris Rossi submitted a proposal at AT&T. All three investors are part of the network headed by shareholder activist John Chevedden of Redondo Beach, California.

Schering and JP Morgan argued that the proposal was "impermissibly vague and indefinite" and thus could be omitted under SEC Rule 14a-8(i)(3). The two companies asserted that the proposal's reference to the CII's independence standard was vague because the resolution did not provide details on the content of that standard. As Schering's outside lawyers noted in their Jan. 28 "no action" request, the proposal could lead some investors to conclude "incorrectly" that the CII's standard is the same as the New York Stock Exchange's, whereas the CII's current independence guidelines are "significantly more stringent."

In response, Chevedden pointed out that shareholders "can easily access the widely known Council of Institutional Investors core definition of independence via the Internet," and noted that the companies have encouraged investors to sign up to receive future proxy materials by e-mail or the Internet.

In letters issued in early March, the Corporation Finance staff agreed that the proposals could be excluded under Rule 14a-8(i)(3). The staff did not rule on the firms' other arguments. Schering, a New Jersey-based drugmaker, asserted that the proposal would violate state law by granting too much power to a single director. JP Morgan argued that the proponent had failed to provide sufficient proof of stock ownership as required by Rule 14a-8(b).

On Feb. 19, the SEC staff turned aside AT&T's request to omit the independent lead director proposal. The telecommunications company pointed out that it has "substantially implemented" the proposal by appointing a lead director who is independent under the NYSE's standards. The company also argued that the proposal has false and misleading statements and that the proponent failed to provide sufficient proof of ownership.

One day later, the staff rejected Boeing's request to exclude the lead director proposal. The Chicago-based aerospace firm challenged that proposal and three other resolutions filed by members of Chevedden's shareholder network. The company unsuccessfully argued that Chevedden was improperly trying to circumvent Rule 14a-8(c), which permits an investor to file only one proposal per shareholders' meeting. AT&T and Boeing did not make the argument raised by the two other firms under Rule 14a-8(i)(3) about the proposal's failure to fully detail the CII's independence standard.

In a "surprise reversal" for Chevedden's investor network, the lead director proposal also will be on the ballot at P&GE, a San Francisco-based utility. The SEC originally granted the "no action" request by PG&E, which also argued that the proposal was vague because it failed to explain the CII's definition of independence. Chevedden, in a March 14 letter on behalf of proponent Chris Rossi, asked the SEC to reconsider, noting that the company failed to send him a copy of its "no action" request. In a March 20 letter to the SEC, a PG&E lawyer acknowledged that its request letter "inadvertently was not delivered to Mr. Chevedden in a timely manner." Accordingly, the company said it would drop its challenge and include Rossi's proposal in its proxy statement.

Adding to an already turbulent market environment, the impact of Bear Stearns' collapse shines a bright light on residual credit risk embedded in the financial markets and yet another opportunistic bid in the M&A landscape. RiskMetrics Group analysts will share their collective insights in a webcast, M&A and Risk Perspective into the Bear Stearns Fallout, on Tuesday, March 25, 2008 at 11 a.m.

The forum will cover:

* The merger terms from the shareholder's perspective;
* The potential standard of review of director actions under Delaware law; and
* Continuing risk in the financial system

To register for the webcast, please visit here.

RiskMetrics Group today launched its Governance Policy Exchange, a first-ever platform that offers a direct view into the corporate governance policies and principles that drive the proxy voting decisions of leading institutions. Policy Exchange users are able to compare and contrast diverse policy views spanning six governance topics and more than 100 sub-categories, facilitating more informed governance decision-making across the institutional investment community.

The initial participants in RiskMetrics Group's Policy Exchange include these leading institutions, known for their views on issues like board accountability, executive compensation, capital restructuring and shareholder rights: TIAA-CREF, Morgan Stanley Investment Management, Domini Social Investments, and the Connecticut Retirement Plans & Trust Funds. The policies are supported with downloadable audio interviews with Policy Exchange participants. A feedback tool allows platform users to comment and submit questions to the participating institutions.

In the coming weeks, new governance policies from institutional investors, issuers and industry groups will be added, building a library that reflects the financial community's broad range of perspectives on corporate governance. The RiskMetrics Policy Exchange is accessible to all interested parties free of charge. To register as a member of the Policy Exchange, please visit here.

This may be the year when carbon trading enters center stage. Growing interest in emissions trading is emerging not just in Europe, but also in the United States and globally. This still young market could see a shake-up as experienced exchange operators, such as Climate Exchange plc and Nord Pool, are challenged by a host of newcomers.

Today, NYMEX Holdings, in partnership with several investment banks and brokers, launched carbon derivatives trading on a new "Green Exchange" in New York. This is the first real challenge to U.S.-based Chicago Climate Exchange, owned by Climate Exchange plc, and is bound to spark new interest in potential growth for the U.S. carbon market. Last month, New Carbon Finance, a research firm, predicted that the U.S. carbon market could be valued at $1 trillion by 2020 if Congress passes a federal "cap-and-trade" system after the next presidential election.

Emissions trading markets allow polluting companies in countries regulated by the Kyoto Protocol to pay others to cut greenhouse gas (GHG) emissions on their behalf to meet emissions reduction targets. Companies in unregulated markets can also make voluntary commitments to reduce their emissions and trade on exchanges such as the Chicago Climate Exchange.

As pressure mounts for negotiators to agree on a post-2012 successor agreement to the Kyoto Protocol, exchange operators and banks are quickly seizing new opportunities. The value of global carbon markets grew by 80 percent from 2006 to 2007, reaching $60 billion in 2007, according to consulting group Point Carbon. This market is expected to continue to grow rapidly, and extend from Europe to the United States.

Several factors are driving this trend. For one, the likely presidential nominees in each party are backers of cap-and-trade legislation. After Sen. John McCain emerged as the Republican candidate for president on the Feb. 5 "Super Tuesday" primary, the price of carbon dioxide traded on the Chicago Climate Exchange jumped from $2.70 for $4.50 per ton. Like his Democratic counterpart, Sens. Clinton and Obama, McCain has pledged to make passage of climate change legislation a hallmark of his presidency. In addition, this bolsters the chance that the United States will be an active participant in the "Bali Roadmap" for a new global climate agreement, and open the door to new carbon trading markets at home and abroad.

Europe vs. the United States
Even without an international post-2012 agreement, Europe is committed to moving ahead on its own. In January, the European Commission announced its proposal for emissions reduction targets to 2020 as well as an update to the European Union Emissions Trading Scheme (EU-ETS). Given that carbon prices for the first phase of trading (2005-2007) collapsed in 2006 due to an oversupply of emissions allowances to affected entities, Europe is now focused on tightening targets, reducing the free allocation of permits and expanding coverage to new industries, including airlines, in the next round (2008 2012), which coincides with the first binding limits under the Kyoto Protocol. The Commission's proposal still needs approval from national governments and the European Parliament, and extensive debate is likely to continue.

Meanwhile, as the United States awaits adoption of its own federal climate legislation, the focus is on voluntary markets, including the Chicago Climate Exchange and a market in Renewable Energy Certificates (RECs) that is meant to spur alternative energy investment. Twenty-seven states plus the District of Columbia have Renewable Portfolio Standards in place that drive the REC market. Additionally, 10 states in the Northeast and Mid-Atlantic region have agreed to a cap-and-trade program to control power generation emissions starting in 2009 under the Regional Greenhouse Gas Initiative (RGGI). And finally, the Chicago Climate Exchange also announced plans in May 2007 to launch the California Climate Exchange, which will support that state's mandatory reductions under the California Global Warming Solutions Act, or AB32. At the same time, several states, including participants from Canada and Mexico, have moved towards standardized corporate emissions reporting through The Climate Registry, a non-profit agency that aims to provide transparency in emissions accounting.

This range of trading options has created a wide variance in carbon prices. A ton of carbon dioxide traded voluntarily on the Chicago Climate Exchange now trades for just over $5, for example, while an equivalent contract on the European Climate Exchange, also managed by parent company Climate Exchange plc, fetches around $35. The main reason for the disparity is that the European trades count toward emissions reductions under the Kyoto Protocol, whereas the U.S. trades do not.

But this all could change after this fall's national elections, and several U.S. banks are already preparing for the future. As one the world's two largest GHG emitters (along with China), the United States is expected to quickly surpass Europe in carbon trades as its key industries become regulated. Banks are eager to step in as intermediaries, and many are buying up carbon credits to sell to industry and national governments later on. Morgan Stanley, for one, has announced plans to commit approximately $3 billion over the next five years to buying carbon credits and developing emissions reduction projects. Several other U.S. and international banks are also building carbon credit portfolios and offering brokerage services for clients, including Barclays plc, Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch and Morgan Stanley.

A number of regulatory changes and emerging trends will have investors focusing on incentive plans and variable pay in the Nordic markets this year. While Danish companies will begin to see the effects of new regulations on shareholder ratification of pay plans, Swedish firms are expected to diversify their methods of director pay to better tie compensation to performance.

The Nordic proxy season usually peaks around mid-March to April, but many meetings will be held early this year because companies want to meet before first-quarter reports are due. The Easter holiday, which is early this year, has prodded many Danish and Swedish firms to move up their meetings.

Denmark
This is the first proxy season since an amendment to the Danish Companies Act (lov om aktieselskaber) established a vote on executive pay. The legislation stipulates that, at all listed companies, the board must establish guidelines concerning variable pay to members of the supervisory and executive boards before making agreements on bonuses or stock compensation. Before they are implemented, the guidelines are put to a binding shareholder vote. Unlike in Norway and Sweden, which have binding annual shareholder votes on some aspect of executive pay, the guidelines at Danish firms only need to be approved when the board makes a material change, not annually like many pay votes.

Since the law was enacted in July, 13 proposals to approve guidelines for incentive-based compensation have gone to a vote. Eight of those proposals were approved by shareholder vote; the results at the other five firms have not been disclosed. According to Danish law, the complete proposals for the general meeting do not have to be made available until eight days prior to the general meeting. Market analysts are still concerned this year that the level of disclosure included in the proxy documents is not adequate to allow shareholders to make an informed decision on the pay guidelines. Large-capital Danish companies are expected to provide greater disclosure than mid- and small-cap firms, which may see more opposition to their proposed pay guidelines, analysts say.

Even under the new law, Danish shareholders will still have to separately ratify any incentive pay and bonus plans based on issuance of new shares.

Sweden
After shareholders of electronics firm Ericsson voted down the company's long-term incentive plan last year, focus on incentive plans has intensified in Sweden. Specifically, two new initiatives are drawing both analyst and shareholder attention this year.

In the past, Swedish directors have been compensated via fixed fees for board and committee work, and, in rare cases, attendance fees. Proposals for board remuneration are usually prepared by the company's nominating committee and approved by shareholders every year at the annual meeting.

During the 2008 proxy season, nominating committees at a significant number of companies, such as Ericcson, plan to propose that part of director pay be made up of variable elements. Specifically, some Swedish firms are considering offering board members phantom shares. In the Swedish system, a phantom share constitutes a cash equivalent of the share price on the grant date. Swedish companies propose to pay a certain portion of director remuneration--such as 25 percent--in phantom shares, which will be deferred for five years then paid in cash. Phantom shares differ from options in that there is potential of both upward and downward movement of the share price and therefore the value of the phantom shares. Depending on the share price, the director could receive either a higher or a lower level of remuneration when compared to fixed fees.

Swedish pension fund Alecta and Stockholm-based investment firm Investor, which have representation at many Swedish firms, urged the change in order to make board compensation more responsive to company performance. Unlike many other markets, where board nominating committees are composed of board members only, Swedish nominating committees typically consist of representatives for the company's largest shareholders, sometimes with the addition of the board chairman. Both Alecta and Investor have representatives on numerous nominating committees because of their large holdings in the Swedish market.

The use of phantom shares is intended to replace the prevalent Swedish company practice of recommending that directors own stock corresponding to 25 percent of their net pay. Although this approach worked in the sense that most directors followed the recommendation, strict holding requirements are not legally enforceable in Sweden. Furthermore, insider trading regulations place restrictions on when directors can acquire shares. These restrictions do not apply to phantom shares, which are technically just promissory notes.

In February, the Swedish Securities Council (Aktiemarknadsnaemnden), a body that promotes good practice in the Swedish stock market, endorsed the use of phantom shares, as long as general principles on incentive plans are followed. The securities council outlined these general principles--including the need for disclosure of planned incentives, anticipated stock dilution, and reasons for adopting the incentive plans--in a 2002 statement. Swedish law dictates that the board cannot make changes to, or adopt, a plan affecting share transfer and issuance to company employees without the approval of nine-tenths of the shares present at the annual meeting.

At the moment, share-based remuneration for non-executive directors is extremely rare in Sweden. SKF Group, a ball-bearing manufacturer, pays its directors the value of a certain number of SKF shares, in addition to a fixed fee, every year. Before this proxy season, only a few companies--such as security products firm Gunnebo, medical equipment company Sectra, and pharmaceutical firm Orexo--granted stock options to non-executive directors.

In Sweden, all share-based incentive plans require the support of 90 percent of both the votes cast and the shares represented at the meeting where the plan is proposed, which means that minority shareholders have a real opportunity to influence the vote.

Sweden is a well-developed market in terms of incentive plans, with a multitude of different types of schemes. There are no signs of a decrease in either the number of plans or their complexity. Share matching plans, where participants make an initial investment in company shares in order to receive free or discounted shares after a vesting period, continue to be popular. Unlike some other markets, the initial investment has traditionally not been a portion of the employee's annual bonus. This year, however, analysts expect that a few deferred bonus plans will be seen in Sweden.

The 2008 proxy season could also see an increased number of plans in which incentive awards are adjusted for dividends accrued between the grant date and the exercise date. A method commonly seen in Finland, namely the lowering of the strike price of options by the amount of accrued dividends, is rarely found in Sweden. However, the number of shares per options will most likely be adjusted in a few plans, and in some share matching plans, accrued dividends on the matching share will be paid out at the end of the vesting period.

The Free Enterprise Action Fund (FEAOX) is asking two companies to adopt a bylaw to ban non-binding--or "precatory"--proposals.

Bethesda, Md.-based FEAOX, led by activist investor Steven Milloy, has submitted a binding proposal at ExxonMobil and Charles Schwab that takes aim at labor funds and social investment groups that Milloy says clutter up company proxy ballots with "nuisance" proposals.

"We see the whole proposal thing as having gotten out of hand," Milloy told R&GW. "The process allows for back-room deals between corporations and investors that don't need to be disclosed to other shareholders, and we see that as harmful."

Activist investors will often submit proposals seeking governance or social reforms, and then withdraw the resolutions after receiving a promise from companies to implement the reforms or examine the issue further. According to RiskMetrics data, investors have already withdrawn more than 100 proposals filed for the 2008 proxy season, often because of successful negotiations with companies.

The Council of Institutional Investors (CII)--which represents 128 public funds, labor investors, and social groups--disagrees with Milloy's characterization of investor negotiations with companies. "In many cases, the most productive proposals are the ones that are ultimately withdrawn," Justin Levis, a senior analyst for CII, told R&GW. "If they are [withdrawn], then productive dialogue was achieved and corporations believe that the proposal was in the best interest of … shareholders as a group."

In recent years, non-binding proposals have prodded hundreds of U.S. companies to adopt governance changes such as majority voting in director elections and board declassification, Levis said.

Milloy, a managing partner at FEAOX--which manages about $11-$12 million in investments--told R&GW that if ExxonMobil and Charles Schwab are willing to support his proposal, it would "pass in a heartbeat," but that without management backing, the resolution would have a hard time winning majority support. Both companies told Dow Jones news service that they received the FEAOX proposal, but both declined to comment before the release of official proxy materials later this year. ExxonMobil received 25 shareholder resolutions this year, including the FEAOX binding proposal, while Charles Schwab has received only two, according to RiskMetrics data.

During the Securities and Exchange Commission's proxy rule-making process last year, several corporate officials and law professors urged the SEC to impose new limits on non-binding proposals or allow companies to adopt their own rules on those resolutions. Labor and social investors responded by filing thousands of comments in support of precatory proposals. (For more information on this topic, please see the Oct. 12, 2007, issue of Risk & Governance Weekly.) So far, the commission has taken no action to further limit shareholder proposals.

I recently submitted an article to Responsible Investor on the similarities between the sub-prime fallout and the climate change crisis. The article, Sub-Prime and Carbon: An Eerie Similarity, covers why banks may be failing to account for underlying risks to a huge class of assets, with tremendous repercussions for the global economy going forward.

While the banking sector itself is not a big emitter of greenhouse gases that contribute to global warming, it is the primary financier of industries that are the major emitters. As regulatory controls and market prices are put on these emissions, this will have a tremendous influence on how banks price securities, assess credit risks and make future investment and lending decisions. At the same time, banks face new opportunities to engage in carbon trading, develop new climate-focused products and services, and invest in the emerging clean technology sector.

To read the article on Responsible Investor, please visit here.

Today we released our fifth annual "SCAS 50" report.

Based on data from the SCAS database, the SCAS 50 lists the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2007 in which the law firm served as lead or co-lead counsel.

We look at the data in three main ways for each firm - total settlement dollars, total number of settlements, and average value per settlement. I have listed the top five firms in each category below.

The full report is available here.

2007's Top 5 - Total settlement value:
1. Milberg Weiss
2. Grant & Eisenhofer
3. Schiffrin Barroway Topaz & Kessler
4. Coughlin Stoia Geller Rudman & Robbins
5. Bernstein Litowitz Berger & Grossmann

2007's Top 5 - Average settlement value:
1. Grant & Eisenhofer
2. Milberg Weiss
3. Labaton Sucharow
4. Schiffrin Barroway Topaz & Kessler
5. Bernstein Litowitz Berger & Grossmann

2007's Top 5 - Number of settlements:
1. Coughlin Stoia Geller Rudman & Robbins
2. Schiffrin Barroway Topaz & Kessler
3. Milberg Weiss
4. Bernstein Litowitz Berger & Grossmann
5. Weiss & Lurie
5. Cohen Milstein Hausfeld & Toll

A few observations.
1. Comparing the 2007 numbers to last year's rankings, we see that settlement values do indeed seem to be rising. The cutoff for the Top 20 last year - $94.1 million; For this year - $148.5 million. The increase cascades all the way to the end of the list, where last year $8.5 million would get you on the list, but this year, the price of admission is $17.5 million.

2. It is somewhat surprising to see Bernstein Litowitz in the top 5 for the number of settlements (as opposed to dollar value or average) as the firm is known to be very selective in choosing cases, and thus is potentially involved in fewer cases at any given time.

3. This is the first time that both Cohen Milstein and Weiss & Lurie have been ranked in the top 5 for one of our categories. One might ordinarily say that it is nice to see some fresh faces at the top, but both firms (or their predecessor firms) are old stalwarts in the plaintiffs bar. We have yet to see any of the truly new faces in securities litigation (Motley Rice, Kahn Gauthier, etc.) high up on these rankings.

Also, RiskMetrics Group will hold its next What You Need to Know for 2008 webcast, Securities Litigation: What European Investors Need to Know, on Friday, March 14 at 14:30 GMT/15:30 CMT/10:30 a.m. EDT. The forum will examine litigation trends and provide important information for European investors who may want to participate in securities class actions. To register for the webcast, please visit here.

U.S. and European regulators this week issued a report assessing the efficacy of risk management practices at major financial services firms during the recent period of market turmoil.

Observations on Risk Management Practices during the Recent Market Turbulence, released March 6, summarizes the results of a review done late last year of risk management practices. The review looked at 11 major global financial services firms, including banks and securities firms. It also reflects the results of a roundtable discussion that participating supervisory agencies held with industry representatives last month, noted William L. Rutledge, executive vice chairman of the Federal Reserve Bank of New York and chairman of the group that oversaw the review.

The 22-page report outlines regulators' observations on the risk management practices that "may have enabled some firms to weather the financial market turmoil better than others through year-end 2007." The report notes that regulators focused on the role of senior management in assessing and responding to the changing risk landscape as well as the effectiveness of each firm's liquidity risk management practices in assessing its vulnerability to that risk and taking appropriate action. A third focus was the effectiveness of market and credit risk management practices in understanding and managing the risks in retained or traded exposures as well as in counterparty exposures, in valuing complex and increasingly illiquid products, and in limiting or hedging exposures to credit and market risk.

Participating regulators say the results of the review will support efforts of the Basel Committee on Banking Supervision to "strengthen the efficacy and robustness of the Basel II capital framework" by:

* reviewing the framework to enhance the incentives for firms to develop more forward-looking approaches to risk measures (beyond capital measures) that fully incorporate expert judgment on exposures, limits, reserves, and capital; and
*ensuring that the framework sets sufficiently high standards for what constitutes risk transfer, increases capital charges for certain securitized assets and asset-backed commercial paper liquidity facilities, and provides sufficient scope for addressing implicit support and reputational risks.

The report's findings also "support the need to strengthen the management of liquidity risk," which, regulators say, should be dealt with through an appropriate international forum (such as the International Organization of Securities Commissions), and for individual national supervisors to "review and strengthen, as appropriate, existing guidance on risk management practices, valuation practices, and the controls over both." A final observation, Rutledge noted, is the need for support of efforts "in the appropriate forums to address issues that may benefit from discussion among market participants, supervisors, and other key players," such as accountants. One such issue, regulators note, relates to the quality and timeliness of public disclosures made by financial services firms and the question of whether improved disclosure practices would "reduce uncertainty about the scale of potential losses associated with problematic exposures."

Global regulatory agencies participating in the review included the French Banking Commission, the German Federal Financial Supervisory Authority, the Swiss Federal Banking Commission, the U.K. Financial Services Authority. The U.S. participants included the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Federal Reserve.

The Securities and Exchange Commission's Division of Corporation Finance has denied a "no action" request by Pulte Homes to exclude a proposal on mortgage lending risks. The decision bucks a trend by the commission of allowing companies to omit similar resolutions.

The proposal, filed by the International Brotherhood of Electrical Workers' Pension Benefit Fund, is among the first to pass muster at the SEC, which to date has allowed home builders and financial services companies to omit a variety of proposals seeking to address risks related to mortgage lending practices or exposure to mortgage-backed securities.

To date, RiskMetrics Group is tracking 22 shareholder proposals for 2008 annual meetings that seek to address risks related to subprime mortgage lending or exposure to nontraditional mortgage investments. Eighteen of those proposals have either been omitted at the SEC or withdrawn.

In a Feb. 27 letter to Pulte Homes' outside counsel, agency staff members rejected the company's argument that the proposal could be omitted on "ordinary business" grounds. SEC Rule 14a-8(i)(7) allows firms to exclude proposals dealing with management functions or those relating to ordinary business operations.

The IBEW proposal calls on the company to establish a committee of outside directors to develop and enforce policies to ensure nontraditional mortgage loans "are consistent with prudent lending practices" and that the board report to shareholders within one year on policies and their enforcement. The proposal suggests that prudent lending practices include consideration of borrowers' ability to repay the loan, and that borrowers are fully aware of loan terms and associated risks. The union fund argues that the proposal would mitigate risk "in light of the substantial risks that nontraditional mortgage products may create for lenders, borrowers, and the broader economy…"

"In our judgment," lawyers for the company wrote, the proposal is "excludable because it focuses on solely on the [c]ompany's mortgage lending operations, which are part of its ordinary business."

A proposal by the LongView fund of the Amalgamated Bank calling for the creation of a compliance committee to review regulatory, litigation, and compliance risks tied to mortgage lending operations was omitted at the Ryland Group, KB Home, and Toll Brothers. Two firms–Lennar and MDC–will allow shareholders to vote on the measure, according to the proponent.

Because the LongView proposal is broadly similar to the IBEW's and was also filed at Pulte, company officials argued for exclusion of the IBEW proposal under Rule 14a-8(i)(11), which allows for omission of a resolution that substantially duplicates a previously submitted proposal. SEC staff members said they were unable to concur with Pulte's argument that the proposals were duplicative, though they did not detail why.

One potential explanation for why Pulte's "no action" petition was denied may lie in the language chosen by the proponent. IBEW's suggestion that "prudent" lending practices include consideration of borrowers' ability to repay the loan, and that they are fully aware of loan terms and associated risks, may have served to frame the resolution as a public policy issue, thus allowing for inclusion.

On Feb. 13, SEC officials denied a "no action" request by Cash America to omit a "predatory lending" proposal filed by Christian Brothers Investment Services and the Benedictine Sisters of Boerne, Texas. The proposal similarly called for the establishment of a committee of outside directors to amend current policies and create enforcement mechanisms to prevent employees and affiliates from engaging in "predatory lending practices." Cash America, which provides consumer cash advances, or "payday loans," argued the resolution was "vague and misleading" and constituted ordinary business.

The necessity for multiple copies of a Power of Attorney (POA) signed by the beneficial owner is seen by many to be a deterrent to vote, given the additional complexity, cost and administrative burden – particularly for cross border votes. We're pleased to announce some positive developments in this area in Finland.

On 27 February 2008 the major Finnish sub-custodians announced that power of attorneys (POAs) signed by the beneficial owner will no longer be required to vote at shareholder meetings in Finland. This positive market practice change, which is effective immediately, is the result of discussions between market participants that have been ongoing for several months. These discussions culminated in several sub-custodian banks obtaining a legal opinion confirming that there was no legal obstacle for removing the requirement for PoAs.

While we agree that this is a great step forward for corporate governance, there remains a possibility that an Issuer will not accept the new practice with immediate effect and will demand to see a signed POA. All participants will be monitoring the situation to ensure that the Issuers accept the new process.

About 15% of markets, many of them European, still require that beneficial owners sign a power of attorney (POA) in order to be eligible to vote. It remains to be seen if other markets will follow the Finnish example and remove existing barriers to cross-border proxy voting.

RiskMetrics Group today announced expansion of its global What You Need to Know educational program for clients and other interested parties. The expanded program runs from late February through early May and cuts across Europe, North America and Asia to ready financial market participants for this year's most pressing governance and risk management challenges.

This week's webcast, 2008 North American Proxy Season Preview, will cover the top issues for proxy season in the U.S. and Canada, including key trends in director elections, M&A and shareholder activism, executive compensation, and social and environmental shareholder proposals. To register for 2008 North American Proxy Season Preview webcast on Friday, March 7, please visit here. To view the entire What You Need to Know series, or to register for any of the upcoming forums, or to view replays of earlier forums, please visit here.

On Feb. 29, U.S. District Judge Melinda Harmon held a hearing on the $7.2 billion Enron class-action settlement and a record $688 million attorneys' fee request, but she did not immediately issue a ruling.

During the 4 1/2 hour fairness hearing in Houston, Harmon heard arguments for and against final approval of the distribution plan and attorneys' fee award. The judge said she would issue her ruling as soon as possible, according to news reports.

The hearing is the latest chapter in investors' efforts to recover the more than $40 billion they lost after Enron, once the seventh-largest U.S. company, collapsed into bankruptcy in 2001. The bulk ($6.6 billion) of the $7.227 billion settlement would be funded by three of the energy company's former investment banks: Citigroup, Canadian Imperial Bank of Commerce, and JP Morgan Chase. Other settling defendants include former Enron auditor Arthur Andersen, Andersen's worldwide affiliate, Bank of America, Lehman Brothers, Enron's former outside directors, and the law firm of Kirkland & Ellis.

Patrick Coughlin, a partner with Coughlin Stoia Geller Rudman & Robbins who represents the class of investors, argued that the settlement is fair and reasonable given the complexity of the lawsuit and the firm's risk in taking on the case. While the fee award would be the largest ever in a securities case, Coughlin noted that the award would amount to 9.52 percent of the total settlement. "This is the largest class (action) settlement ever. There is no case comparable to this result," he said.

Coughlin told the judge that his firm spent $100 million while researching and preparing the case against Enron's banks; the firm billed 247,000 hours, took more than 300 depositions from witnesses, submitted 5,700 filings, and reviewed 70 million documents. "The one thing we could not do was settle it for a nominal amount. We went all out," Coughlin said, according to Bloomberg News. "We risked $100 million, and we could've gotten zero."

The fee request was based on a retainer agreement that the San Diego-based law firm reached with the lead plaintiff, the University of California. The agreement provided for a sliding fee scale from 8 to 10 percent, with the fee percentage increasing based on the size of the recovery.

Ari Garbow, an attorney for Fiduciary Counselors, which oversees Enron's retirement and savings plans, said the fee request is "grossly out of sync with comparable cases," according to the Houston Chronicle. He proposed that the award be cut to about $400 million, or 5.65 percent of the settlement. In the WorldCom class action, the $336.1 million fee award amounted to 5.5 percent of the overall $6.1 billion settlement.

Lawrence Schonbrun, a lawyer for an individual investor, said the fee request was "an affront to every working person in this country," according to the Associated Press.

Coughlin Stoia bolstered its fee request with supporting declarations from Columbia University Law Professor John C. Coffee Jr., Harvard University Law Professor Lucian Bebchuk, a former federal judge, and several officials with the University of California.

In his declaration, Coffee said the Enron case was risky for Coughlin Stoia to bring because the investor plaintiffs were relying on a novel "scheme to defraud" theory that had been rejected by other federal courts (and was later rejected by U.S. Court of Appeals for the Fifth Circuit, which oversees appeals from the federal courts in Texas). The firm "was able to induce some of the largest, most sophisticated financial institutions in the world to settle for record amounts, based on a novel theory that other plaintiffs' counsel might have overlooked or been unable to articulate convincingly," Coffee wrote. "Unlike other recent mega-fund cases--most notably WorldCom--[Coughlin Stoia] lacked the overwhelming legal leverage in this case that compelled the defendants in WorldCom to settle."

Coffee noted that Coughlin Stoia helped Enron investors recover 8.3 percent of their market capitalization losses, 2.86 times the 2.9 percent recovery obtained by WorldCom investors. He pointed out that only 20.9 percent of the WorldCom settlement "was actually paid to shareholders"--the rest of the settlement went to note purchasers. "Viewed in this light, [the Enron settlement] recovered for shareholders almost six times as much as WorldCom--and in the face of higher risk," he concluded. To review Coffee's declaration and other settlement documents, click here.

The Enron settlement is open to investors who bought company stock or related securities between Sept. 9, 1997, and Dec. 2, 2001. Under the distribution plan, holders of Enron's common shares would receive $6.79 per share, while holders of preferred stock would get $168.50 per share.

The investors are still pursuing claims against Merrill Lynch, Credit Suisse Group, and Barclays. On Jan. 22, the U.S. Supreme Court rejected the investors' request to review the Fifth Circuit ruling that barred them from bringing class-action claims against three banks. The high court's decision wasn't a surprise after the justices ruled in a separate case that Charter Communications shareholders could not sue two of the company's former vendors.

Trey Davis, a spokesman for the University of California, said the investor plaintiffs are considering their options and will present them to Judge Harmon, the Houston Chronicle reported. The Enron investors also have claims pending against former CEO Jeff Skilling, ex-Chief Accounting Officer Richard Causey, the Royal Bank of Canada, Royal Bank of Scotland, and Toronto-Dominion Bank. On Feb. 5, the university announced a $11.5 million settlement with Goldman Sachs over notes issued by Enron.

RiskMetrics Group will hold a webcast on Wednesday, March 5 at 11 a.m. on how to better understand the risk exposure around auction rate securities. The forum will cover the surprisingly high company exposure to auction rate securities and other risky "close-to-cash" investments. Investors can gain a better understanding of a company's risk exposure, despite limited transparency or lack of investment disclosure available. Additionally, the forum will present today's transparency issues, tips for assessing risk despite the current barriers, and examine various company methods and examples of disclosures.

To register for the forum, please visit here.